Insurgent candidates who win the nomination tend to transform their party, even if they never become president.

IN EVERY continent he seems familiar. Italians see another Silvio Berlusconi, South Africans a Jacob Zuma and Thais a Thaksin Shinawatra. Latin America practically invented the type: to Argentines he is Juan Perón’s echo. Those who find Donald Trump scary sometimes compare him to jackbooted fascists in 1930s Europe. The search for the right precursor to Mr Trump is born of an understandable urge to work out what happens next.Here is a prediction: Mr Trump, who will stand onstage at the Republican Convention in Cleveland and accept the party’s nomination as its presidential candidate, will have a more lasting effect on the Republican Party than its elected members currently realise, even if he goes on to lose the election in November.For the moment, most Republicans either resist this notion or are relaxed about it. “I don’t think the Trump nomination is going to redefine in any real way what America’s right-of-centre party stands for,” Mitch McConnell, the Senate majority leader, told National Public Radio after the primaries were over. “You know what, I think something different and something new is probably good for our party,” Reince Priebus, head of the Republican National Committee, told CNN, hopefully. Paul Ryan, who has criticised Mr Trump during the campaign and since, wrote in his hometown newspaper: “On the issues that make up our agenda, we have more common ground than disagreement.”For those watching the convention, which begins on July 18th, what is happening may not appear unusual. The party has rallied, as it usually does, behind the nominee. Before the first caucus met in Iowa, Gallup reported that Mr Trump was already familiar to 91% of Americans. Familiarity has bred content among most right-leaning voters (see chart 1). Yet what is happening in the Republican Party right now is far from normal..

The party is nominating someone who is not a Republican in any recognisable form. Instead, Mr Trump combines traditions that Republicans and Democrats have at times flirted with, only to reject them when in government. One of these is populism, which in America usually means making promises to improve the livelihoods of blue-collar workers by protecting them from foreign competition, whether that comes in the form of immigration or trade.Pat Buchanan, who made bids for the Republican presidential nomination in 1992 and 1996, declared during his first attempt: “If I were president I would have the Corps of Engineers build a double-barrier fence that would keep out 95% of the illegal traffic. I think it can be done.” Four years later Mr Buchanan, who studied at Georgetown and Columbia, said that the peasants were coming with pitchforks, and that he was their champion. Ross Perot, who ran for the presidency as an independent in 1992, made a different part of the Trump pitch—the successful businessman who would stop the “giant sucking sound” of American jobs being hoovered up by Mexico, the billionaire promising to make competition go away.

A lone voice

A second thread that has been gathered up by Mr Trump is isolationism. His talk of “America First” is borrowed, consciously or not, from Charles Lindbergh, whose America First Committee argued in the 1940s against participation in the second world war. Mr Trump is not consistent on this point: at times he regrets American involvement in foreign wars, at others he wants to seize foreign oilfields. The idea that America should station troops abroad, but that the countries concerned would have to pay for it, is the synthesis of his opposing instincts over dealing with the rest of the world.The third thread is nativism. For Mr Trump, not all citizens are equally American. Hence his claims that Gonzalo Curiel, a federal judge born in Indiana, was biased against him because of the judge’s Hispanic background. Mr Trump’s plan to deport the 11m undocumented migrants from America is a nativist fantasy. It recalls the enthusiasm for deportation of Art Smith, another fringe politician from the 1930s. Smith, who really was a fascist, advocated the removal of radicals from the country. America’s appetite for fascism proper was tested in 1933, after a protester was killed at a rally. Smith proposed a march on Washington later that year which, he boasted, would number 1.5m people. Only 44 showed up.Populism, isolationism and nativism are distinct from racism. But they can often be found on the same shelf. Towards the end of the 19th century, as Chinese labourers were brought to California to work on the railways, Denis Kearney, a labour-movement leader, made a career out of attacking the “Chinaman”, laying the groundwork for the Chinese Exclusion Act of 1882, the first of several laws to interrupt migration from Asia. Kearney did not just object to Chinese workers undercutting American wages. He found their food, habits and living arrangements revolting. “Whipped curs, abject in docility, mean, contemptible and obedient in all things…they seem to have no sex. Boys work, girls work; it is all alike to them.”Mr Trump’s assertions that Mexico is not just destroying American workers’ livelihoods (because of NAFTA), but sending drug-dealers and rapists across the border too, is Kearney for the 21st century. When accused of racism, Mr Trump responds that he loves Hispanics and insists they love him back. His supporters hear what they want to hear.

From light to night

Like any successful populist, though, Mr Trump is also of his time. In 1984 voters were persuaded that it was morning in America; in 2016 many seem prepared to believe that night is falling. Two-thirds say that the country is on the wrong track. Ever since Ronald Reagan’s first victory, it has been a cliché that the most optimistic candidate usually wins. Mr Trump has turned this upside down, declaring during the primaries: “This country is a hellhole.” Bad news seems to confirm his thesis and gives his candidacy energy. The shootings in Dallas are the latest example, but the same could be said of the attacks in Orlando and San Bernardino.Mr Trump’s most popular proposal, more loved even than the Great Wall of Texas, is to ban Muslims from entering the country. Exit polls from the Republican primaries recorded that voters were more worried about terrorism than immigration. That, combined with anxieties about the changing racial make-up of America, explains why around two-thirds of primary voters supported the Muslim ban.Though much of it may be old, there is nothing old-fashioned about how Mr Trump delivers his message. His skill on broadcast media recalls Charles Coughlin, a Catholic priest whose radio show reached around 30m listeners at its peak in the 1930s. Coughlin founded the Union Party in 1936 and supported Huey Long, a populist of the left who wanted a corporatist state to save workers from the cruelty of capitalism. But it is impossible to disentangle Mr Trump from the world of reality television, where he honed his narrow-eyed stare and finger-jabbing persona. Or from social media, which Mr Trump uses sometimes to broadcast his views and sometimes to insinuate them.He has an ability to say things that are not true but which seem, to his supporters, to be right anyway. Shared with like-minded people on social networks, this has been a boon for what Richard Hofstadter called “the paranoid style in American politics”, an apparently sincere belief in implausible conspiracies. Mr Trump’s insinuation, after the shooting in Orlando, that the president might secretly sympathise with Islamic State was a model of the paranoid style.The most novel thing about Mr Trump, though, when compared with the fringe figures who preceded him, is that he is the nominee of one of America’s two main parties. This puts him in a different category and will give him a greater opportunity to shape the country. This is obviously the case if he wins in November. But it will probably happen even if he loses, currently the more likely result.

A handful of insurgent candidates have seized the nomination, lost the election and transformed their parties anyway. From the late 19th century William Jennings Bryan failed three times as a Democratic candidate while campaigning for a federal income tax, popular election of senators, votes for women and other causes that had become laws by the time of his death. Two more recent examples of nominees who have done the same are worth looking at more closely.The first is George McGovern, the Democratic nominee in 1972, beaten by Richard Nixon in 49 states. One reason for this rout was that McGovern’s Democratic Party seemed to hold different values to those of most voters. In his history of the era, Rick Perlstein recounts how television cameras at the 1972 convention lingered on two men in the hall who were wearing purple shirts with “gay power” written on them, and kissing. The same convention was the first to be addressed by an openly gay man, Jim Foster. McGovern proposed a “Demogrant”, a basic income for all, guaranteed by government. Many Democrats looked at lonely Massachusetts in the blue column the day after the election and concluded that they could never win the presidency with a candidate like McGovern.Viewed today, the 1972 Democratic campaign looks premature rather than wrong. That is the view of John Judis and Ruy Teixeira, authors of “The Emerging Democratic Majority”, published in 2002. One chapter of their book is called “George McGovern’s revenge”. McGovern appealed strongly to non-whites: according to Gallup he won 87% of them in 1972, a higher proportion than Barack Obama managed in 2012.The rapidly increasing racial diversity of the electorate between then and now has turned this from a losing strategy into a winning one. McGovern did better with working women than men and better with professionals than with blue-collar workers. This, too, made him a loser in 1972 but provided the template for Democratic victories in 2008 and 2012. Polls suggest that Hillary Clinton may be the first Democratic presidential candidate for at least 60 years to win a majority of white voters with college degrees (see chart 2)..

Before McGovern, Barry Goldwater also got thrashed and transformed his party in the process. Goldwater lost 44 states on a platform of huge tax cuts, pouring weedkiller on the federal government, opposition to civil rights and confronting communism abroad. “Extremism in the defence of liberty is no vice,” he told the 1964 convention in Daly City, California.Voters disagreed, and not even a powerful televised speech made in support of Goldwater by Ronald Reagan, then a TV presenter, could persuade them otherwise. The future for Goldwater’s ideas did not look bright. “The election has finished the Goldwater school of political reaction,” wrote Richard Rovere in the New Yorker, reflecting the consensus of what would now be called the mainstream media but then was simply known as the press. It could hardly have been more wrong.As with McGovern’s defeat, Republicans initially reacted by picking candidates with more traditional views of government. Goldwater’s success in the Deep South, thanks to his opposition to civil rights, the popularity of George Wallace, the segregationist governor of Alabama, and rising public alarm about law and order and cultural change, bore fruit in the 1968 election, when Richard Nixon grabbed millions of voters from the Democrats to build a “New Majority” of big-city Irish, Italian and Polish Catholics, and white Protestants from the South, Midwest and rural America, beginning a nationwide realignment of politics that is still playing out today.

Goldwater runs Deep

The radical conservative side of Goldwater’s platform had captured his party’s heart by 1980. Reagan won the nomination and then the general election on a platform of tax cuts, shrinking government and confronting communism abroad. Up until last year, it was accurate to say that Goldwater still provided the intellectual framework for the Republican Party: George W. Bush is disliked by so many Republicans because his big-government conservatism strayed too far from it. With Mr Trump as the nominee, the Goldwater takeover, which has lasted 35 years, is under threat.What might a Trumpist Republican Party look like? In “five, ten years from now,” he told Bloomberg, “you’re going to have a workers’ party. A party of people that haven’t had a real wage increase in 18 years, that are angry.” Speaking at a recycling plant in Pennsylvania in June, he said that American workers had been betrayed by politicians and financiers, who “took away from the people their means of making a living and supporting their families”.This is a complete reversal of Republican orthodoxy of the past 30 years, which has mixed openness to trade and an impulse to cut entitlement spending with conservative stances on social issues. Anyone who thinks that the party will revert to that orthodoxy if Mr Trump loses wasn’t paying enough attention during the primaries, which suggested that registered Republicans are, on the whole, less interested in government-shrinking and values-voting than their elected representatives are.

Those who lean Republican, according to polling by the Pew Research Centre, are more likely to say that free-trade deals are bad for America than those who lean Democratic (see chart 3). The same polling shows that Republican voters are just as reluctant to cut Social Security benefits as Democratic ones. This helps to explain why Republican primary voters liked the sound of what Mr Trump is selling more than they liked the tax-cuts-and-Old-Testament tunes of the party’s late-Goldwater period. And elected Republicans are acutely sensitive to the preferences of their primary voters, who have a veto on whether they will end up running for office..

As well as a reversal of party orthodoxy, Mr Trump’s campaign has also ditched the party’s electoral strategy. From Mitt Romney’s defeat in 2012 until Mr Trump won in South Carolina, it seemed obvious that to win the presidency the Republican Party needed a candidate with some appeal to Hispanic voters: hence the excitement about Jeb Bush, whose wife is Mexican, and then Marco Rubio, whose parents were born in Cuba. Instead, the party has picked a candidate of whom 87% of Hispanics disapprove.This would appear to be a recipe for Republicans to lose a lot of presidential elections, and it might indeed prove to be so. Even with low levels of immigration by past standards, demographers expect America to have a non-white majority by the middle of the century. Getting caught out by a demographic wave of this size would, eventually, lead to the Republican Party being dragged to the ocean floor and held underwater until it blacked out.Yet the electorate is not the same as the population, because not all voters are equally likely to turn out. Even in 2012, an election that saw minorities turn out in record numbers, voters were as white as America was 20 years before. Three demographers—Mr Teixeira and Rob Griffin of the Centre for American Progress, and Bill Frey of Brookings—have run a simulation to see what would happen if the Republican Party managed to boost white turnout by 5% across the board, while all other voter groups remained constant. This would be hard to achieve, but not impossible: turnout among whites in 2012 was 64%, which leaves some headroom. The result of the voting model is a Republican advantage in the electoral college up until 2024, after which point the strategy no longer works..

A Trumpist Republican Party might not win many presidential elections. But it could be competitive enough to resist demands for reform and would probably have enough bodies to block legislation in Congress. With less outright hostility to Hispanics and a softer tone towards women, it might even attract some of those currently on the left who are hostile to trade and globalisation, or who worry about threats from immigration and automation, to create an updated populism.

The coalitions that have underpinned both main parties now look fragile. On some cultural issues, notably guns, white Democrats without a college education are more closely aligned with the Republicans than with the party they currently vote for. Mr Trump’s coronation in Cleveland will be the burial of an old dynasty. It may also be the foundation of a new one.

PORTO – One thing is now certain about the upcoming presidential election in the United States: the next president will not be a committed free trader. The presumptive Democratic nominee, Hillary Clinton, is at best a lukewarm supporter of freer trade, and of the Trans-Pacific Partnership in particular. Her Republican counterpart, Donald Trump, is downright hostile to trade deals that would throw open US markets. Breaking with modern Republican tradition, Trump envisages a 35% tariff on imported cars and parts produced by Ford plants in Mexico and a 45% tariff on imports from China.

Economists are all but unanimous in arguing that the macroeconomic effects of Trump’s plan would be disastrous. Repudiation of free and open trade would devastate confidence and depress investment. Other countries would retaliate by imposing tariffs of their own, flattening US exports. The consequences would resemble those of the Smoot-Hawley Tariff, enacted by the US Congress in 1930 and signed by an earlier, disgraced Republican president, Herbert Hoover – a measure that exacerbated the Great Depression.

But just because economists agree doesn’t mean they’re right. When the economy is in a liquidity trap – when demand is deficient, prices are stagnant or falling, and interest rates approach zero – normal macroeconomic logic goes out the window. That conclusion applies to the macroeconomic effects of tariff protection in general, and to the Smoot-Hawley Tariff in particular. This is a point I demonstrated in an academic paper written – I hesitate to admit – fully 30 years ago.

Consider the following thought experiment. President Trump signs a bill slapping a tariff on imports from China. This shifts US spending toward goods produced by domestic firms. It puts upward pressure on US prices, which is helpful when there is a risk of deflation.

But then President Xi Jinping retaliates with a Chinese tariff, which shifts demand away from US goods. From the standpoint of American consumers, the only effect is that imports from China (now subject to tax) and their US-produced substitutes are both more costly than before.

Under normal circumstances, this would be an undesirable outcome. But when deflation looms, upward pressure on prices is just what the doctor ordered. Higher prices encourage firms to raise production and households to increase their spending. They also reduce the burden of debts. And because inflation is still too low, owing to depressed macroeconomic conditions, there is no need for the Fed to raise interest rates and offset any inflationary effects of the increase in spending.

To prevent this thought experiment from being misconstrued, I want to be clear: there are other, better ways of raising prices and stimulating economic activity in liquidity-trap conditions. The obvious alternative to import tariffs is plain-vanilla fiscal policy – tax cuts and increases in public spending.

Still, the point about tariffs is important. Just as tariff protection is not a macroeconomic problem in deflationary, liquidity-trap-like conditions, freer trade, the economist’s familiar nostrum, is not a solution. Those seeking a cure for the current malaise of “secular stagnation” – slow growth and sub-2% inflation – shouldn’t claim too much for the beneficial macroeconomic effects of trade agreements. And they shouldn’t invoke the old saw that Smoot-Hawley caused the Great Depression, because it didn’t. False claims, even when made in pursuit of good causes, do no one any good.

But Smoot-Hawley did have a variety of other damaging consequences. First, it disrupted the operation of the international financial system. Free trade and free international capital flows go together. Countries that borrow abroad must export in order to service their debts. Smoot-Hawley and foreign retaliation made exporting more difficult. The result was widespread defaults on foreign debts, financial distress, and the collapse of international capital flows.

Second, trade wars fanned geopolitical tensions. The French Chamber of Deputies was outraged by American taxation of French specialty exports and urged an economic war against the US. The UK taxed imports from the US while giving special preferences to its Commonwealth and Empire, angering Hoover and his successor, Franklin Delano Roosevelt.

Canadian Prime Minister Mackenzie King warned of an outbreak of “border warfare,” diplomacy-speak for deteriorating political relations. Efforts to stabilize the international monetary system and end the global slump were set back by these diplomatic conflicts.

Worse, US, British, French, and Canadian leaders were at one another’s throats at a time when they should have been working together to advance other common goals. After all, economic policy aside, there was an even greater threat in the 1930s, namely the rise of Hitler and German re-militarization. Unilateral resort to trade restrictions, by making diplomatic cooperation more difficult, complicated efforts to mobilize a coalition of the willing to contain the Nazi threat.

Tariff protection may not be bad macroeconomic policy in a liquidity trap. But this doesn’t make it good foreign policy – for Trump or anyone else.

From an economic standpoint, it makes sense for the Federal Reserve to hold off on rates; but then there’s what’s happening with asset prices

By Justin Lahart .

The Federal Reserve was successful in getting ahead of Brexit worries, but the central bank still has to be on guard for the fallout. Photo: karen bleier/Agence France-Presse/Getty Images

The past few weeks have been very good for the Fed. Its Brexit worries proved prescient and its inaction on rates this year looks like a canny prediction of slowing growth and weaker currencies overseas. The risk is that asset prices keep soaring, potentially setting markets up for a crash when the Fed does move.U.S. investors’ moment of post-Brexit fear has more than passed—witness the stock market’s new highs—but for the Fed it is still something to worry about. Unsure of how big a hit Britain will absorb and what sort of fallout the global economy will take, the central bank looks likely to keep rates on hold not just at its policy meeting later this month but at its September meeting as well.

One danger is that Brexit has little impact and the economy picks up steam, leading to an even tighter job market and an unexpected jolt of inflation. Given the state of the rest of the world and the probable moves in currencies and that risk seems unlikely.

The U.K. is hardly the only challenge the global economy faces in the months ahead. Europe’s already-weak economy must cope not just with Brexit but with Italy’s banking woes. A strong yen is hurting Japan’s economy, putting pressure on officials there to intervene in the currency market and launch fresh stimulus. And with their earlier stimulus efforts losing steam, Chinese officials have been allowing the yuan to weaken in an effort to bolster exports.All of those things suggest the dollar, which shot higher after Brexit, may have more room to run, according to strategists at Evercore ISI. That would weaken America’s trade position while further restraining inflation, effectively doing a lot of the Fed’s work for it. In that context, waiting until December to raise rates would be easy.

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But a stronger dollar affects the economy in different ways than Fed rate increases, which lead to higher borrowing costs, lower investment and reduced asset values. It weighs on U.S.-based manufacturers, who face increased price competition from foreign counterparts both at home and abroad, but it doesn’t directly affect more insulated businesses. And by making imports cheaper, it puts some businesses and many consumers in a better place.Similarly, dollar strength weighs on prices for goods, which are heavily exposed to trade, but leaves prices for services, which have been rising, unscathed.Moreover, expectations that the Fed won’t tap the brakes may only increase the attractiveness of U.S. assets for global investors. That may be one of the factors behind the rally in stocks, and part of the reason why yields on junk bonds have fallen to their lowest point against Treasurys in nearly a year. Prices for other income-generating assets, such as commercial property, could also get bid higher.

In 1950, when the global economy was struggling to recover from World War II, oil-rich Venezuela was the world’s fourth-wealthiest country, boasting a per capita GDP of $7,424 exceeded only by the United States, Switzerland and New Zealand. Indeed, Venezuela’s per capita income was nearly four times higher than that of Japan (at $1,873), nearly twice that of Germany ($4,281) and more than 12 times that of China ($614), according to NationMaster.com, an economics statistics site. By 2012, Venezuela’s per capita GDP ranked 68th in the world, according to the World Economic Forum. But it has continued to shrink since then, dropping 5.7% in 2015 and by a projected 7.1% rate in 2016, according to the country’s central bank. Inflation in Venezuela, the highest in the world, reached 159% in 2015 and is expected to grow to 204% this year, according to the International Monetary Fund.Those statistics only hint at the depth of the country’s humanitarian crisis, marked by dramatic shortages of essential foods and consumer products. Today’s Venezuela is not an attractive locale for investment, but a landscape where armed guards fend off consumers desperate to purchase essential foodstuffs and household goods in short supply. According to the Pan Am Post, an online regional publication, the Venezuelan government recently identified at least 15 food items and 26 personal care items in short supply or unavailable in Venezuelan grocery stores.“In Venezuela we have the kinds of scenes that you don’t expect to see in a relatively developed, modern economy and one of the largest oil producers in the world,” Penn Law professor William Burke-White says in an interview on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111.“The experience of the everyday citizen in Venezuela on the ground today is one of hunger and starvation.”

Burke-White adds that former Venezuelan President Hugo Chavez, who was in office from 1999 until his death in 2013, and his successor, current President Nicolas Maduro, built an economy based on the assumption that they would be able to generate enough revenues from oil to finance a comprehensive system of social welfare benefits. But once that income dried up as oil prices collapsed, the model fell apart, Burke-White explains. After oil prices fell, and the country was hit by a serious drought, “there wasn’t just economic hardship, but mass starvation on the streets.”

With the collapse of its economy, the government has been printing and borrowing money to meet expenses. Adds Burke-White, “Inflation has skyrocketed and the currency is essentially worthless. So not only can Venezuela not produce food, it can’t buy it. And it doesn’t have the oil revenues to support major food purchases from overseas.”

A Broad-based Implosión

According to Kevin Casas-Zamora, senior fellow and program director of the Inter-American Dialogue’s Peter D. Bell Rule of Law Program, “We haven’t seen anywhere in Latin America an implosion across the board, the way we are seeing it in Venezuela,” at least not in the past few decades. Casas-Zamora says Chile at the end of former President Salvador Allende’s tenure in the early 1970s comes closest, but it was never nearly as bad as the situation in Venezuela now. “We are seeing in Venezuela the convergence of the trends of economic deterioration, political deterioration, the collapse of public order, and energy shortages; so it is really across the board,” he notes, adding that the country’s normal challenges have been “exacerbated by 10 years of horrific economic mismanagement done to prop up a political system that depended essentially on hand-outs and a kind of state socialism.”

Economic imbalances accumulated in the past 17 years are a big part of the story, but the trigger for the current meltdown is oil, says Charles Shapiro, who served as U.S. Ambassador to Venezuela from 2002 to 2004. “The fact that oil prices have collapsed is not the root of the crisis, but definitely the trigger — at least, on the economic front,” Shapiro notes. “On the political front, over the past 17 years, we’ve seen an authoritarian slide which was very obvious — but in a very peculiar way.”There was a very clear authoritarian tendency during the Hugo Chavez years, but he never quite shut down democratic spaces: “Elections were held and, for the most part, the votes were counted fairly, and very, very rarely would the government lose,” Shapiro says. Independent media never ceased to exist under Chavez. While their outlets were harassed and the government “bought off” a lot of media outlets, they were always part of the landscape, he notes. “So while it was an authoritarian leaning system, it was never a dictatorship. Chavez was no Abe Lincoln but he was no [Fidel] Castro. But what we are seeing now is something entirely different.”

The timing of President Maduro’s ascent to power exacerbated the situation, according to Shapiro. “In many ways, Hugo Chavez was the luckiest guy in the world,” he says. “When Chavez became president, Venezuelan oil sold for $8 dollars a barrel. … It reached $140 at one point, and was around $115 or so [when he died]” and when Maduro began his tenure.But last August the price per barrel plunged below $40 for the first time since 2009; the price is now hovering around $50 and is expected to fall again. “[Venezuela] made long-term commitments that it could not meet with oil [prices so low],” Shapiro says. “Right now, prices would probably need to be at $150 [a barrel] to cover their commitments.” During the Chavez-Maduro era, Venezuela’s dependence on oil products grew from 70% of the country’s export basket in 1998 to 98% in 2013, according to researchers Dany Bahar of the Brookings Institution and Miguel Angel Santos of Harvard’s Center for International Development in a recent study.Shapiro, currently executive director of the World Affairs Council of Atlanta, adds, “They spent money on all kinds of things: They de-funded the public health system and set up a parallel system with Cuban doctors. They built railroads across the country that were never finished; [they spent money] to extend subways that were never extended; to rebuild ports; to give away houses; [to build] a factory for assembling Iranian tractors [that has since been shut down.] They re-nationalized the electricity and phone systems; and turned PDVSA [the Venezuelan national oil company] from a fairly efficient company into an oil company that is hugely inefficient, [a company] where employment has tripled although production has dropped.”

The Collapse of Public Order

According to Casas-Zamora, the other big element in this crisis, which is often overlooked, is the collapse of public order. “No country — not even the highly violent countries of northern Central America, which have always done poorly when it comes to personal safety — has experienced over the past decade or decade and a half, the deterioration of public security and personal safety that Venezuela has undergone,” he says. “The place was never Denmark; but at this point, Caracas is, in all likelihood, one of the most violent capitals in the world.” Though the government stopped publishing security information years ago, non-governmental organizations in Caracas estimated the homicide rate recently as “approaching 200 murders per 100,000 people, worse than for any other year,” he adds. “The WHO [World Health Organization] deems that a homicide rate of 10 per 100,000 people is tantamount to having an epidemic.”Casas-Zamora says this is particularly distressing because Venezuela did once maintain a functioning — if somewhat imperfect — political system and social order. “The place was never Switzerland, but it was a working democracy,” he notes. “Particularly in the bleak political landscape of Latin America, it was held up as an example of political tolerance. That is no longer the case, by any stretch.”There was once “kind of a light-hearted attitude among Venezuelans; you could lose but no one would ever get upset,” Casas-Zamora says. “Ever since [Chavez’s] passing, and particularly after the ruling party lost big in the legislative elections last December — for the first time in 17 years — the slide toward authoritarianism became unstoppable.” At this point, Venezuela “has become a dictatorship, pure and simple…. There are no checks and balances whatsoever,” Casas-Zamora adds. “The most visible case is the Supreme Court, which has the critical task of interpreting the constitution. The same can be said about the Electoral Authority, the Human Rights Ombudsman — and all other institutions that are meant to keep executive power in check.”The most visible example of the abusive use of power has been the Supreme Court, Casas-Zamora says. “A couple of academics did a very meticulous study checking rulings of the Venezuelan judiciary in cases where the government was party to the case. In a period of about 10 to 12 years, they found that out of about 14,000 rulings that were made by the Venezuelan judiciary, not a single ruling went against the Venezuelan government. That tells you something.”Shapiro adds, “On the political side — technically, there are five independent branches of government with a system of checks and balances. In reality, there is no system of checks and balances.” Can the situation get much worse? “If you control the interior ministry, the intelligence service, and the police and the armed forces, you can always make things worse and you can hold on for a very long time,” Shapiro notes. “That’s what’s going on in Venezuela. They don’t care enough [that things are getting worse] to change policy.”In May, President Maduro adopted an emergency decree that declared a “state of exception” in the country for 60 days, granting his government the power to potentially restrict human rights, ostensibly in response to concerns about a foreign-led plot to destabilize his government. The decree authorizes Maduro to “adopt measures and execute special security plans that guarantee the sustainability of the public order when faced with destabilizing actions” and “any other social, environmental, economic, political and legal measures he deems convenient.”

A Long-term Solution

What are the critical first steps toward finding a solution? “Step one is, ‘You’ve to stop printing money because the inflation rates are out of control and that’s how the government is surviving,” says Burke-White. Step two, “they have to strike a new economic bargain with the Venezuelan people that doesn’t involve the kind of subsidies that create huge distortions in the economy. Simultaneously with that, you have to provide humanitarian assistance because when those subsidies are removed, and suddenly a pound of flour becomes even more expensive, people will suffer.” As an additional step, there should be a revaluation of the Venezuelan currency and significant economic support. “That’s worked elsewhere. When you look at the Asian economic crisis or the Mexican economic crisis from 10 and 20 years ago, there are programs that worked,” he notes. “The problem is that there is not really a political will and political connection with the Venezuelan government to do that.”Venezuela needs to undertake massive economic reforms, it must wean itself off oil revenues and in the short-term, it needs significant foreign assistance, Burke-White adds. “They have spent the last eight or 10 years making enemies of their neighbors and the United States, so no one really wants to come to their aid,” he notes. “So the question becomes — does the Venezuelan government have the ability and willingness to make the reforms necessary and can they get enough assistance in the short term to survive that populist uprising?”In “the most optimistic scenario,” according to Shapiro, “Maduro says, ‘I’m wrong; we’re following the wrong policies.’ And then he slams himself in the forehead with the palm of his hand, and says, ‘I resign — we’re going to have a technocratic government. A new government is coming in.’” Even in such an unlikely event, continues Shapiro, “if [Maduro] turns the policy around 180 degrees, it is going to take, I would argue, 10 to 15 years for Venezuela to reinvent itself as a modern, democratic society.” Even in this best-case scenario, however, there is a major risk that Venezuela’s brain drain will continue, Shapiro adds. “Panama, Colombia, Atlanta, Miami, Spain, Portugal are already full of Venezuelans who have emigrated permanently. Right next door, Colombia is booming while Venezuela is collapsing.”If he did leave, who would succeed Maduro as president? “It is not obvious what the alternative will be, partly because Chavez and Maduro have frozen out political opposition to the degree they have,” Burke-White says. “It’s not like there’s a recall election and suddenly the good guys come to power.”According to Shapiro, if “Maduro is smart enough and clever,” he will understand that “letting the recall referendum proceed is like having an escape valve on the radiator…. If he wins the recall referendum — and he is not recalled [from office]– or if he loses the referendum, it lets all this pressure building up in the political system escape.” But achieving a consensus even among new leaders would be no mean task, Shapiro notes. “Venezuela is the most polarized country I’ve ever lived in. The people on each side [of the political spectrum] not only disagree with each other, they don’t believe the other person has the right to believe the way they do.”Can a full-fledged humanitarian disaster be avoided? It doesn’t help that the country’s plight has received little attention until recent dramatic events. “What is changing now, is the visibility of the problem,” says Burke-White. “Once the world starts to see what is happening, I do think you’ll see greater humanitarian assistance. And then the question will be: Will there be the kind of political leadership and political change needed to solve the underlying problem or even to see that, if there is humanitarian assistance, it gets to the people in need, rather than getting hijacked by the rich?’”Regretfully, notes Burke-White, “Venezuela prided itself on essentially snubbing its nose at the West and fomenting socialist revolution in its neighbors. So it doesn’t have a lot of friends at the moment who are willing to do very much.” There may be some assistance from Argentina, Chile and from within the region, Burke-White says, but it will take either a greater humanitarian crisis, or a real political outreach from Venezuela before “the countries Venezuela has been thumbing its nose at – like the United States – do too much more.”Getting food to the country is only one part of the challenge, Burke-White notes. The other part is getting food properly priced and making sure that the income inequality and disparities that exist are addressed. “So you may see some real pressure from potential donors to get some of the Venezuelan house of cards in order before real assistance starts to flow.”

As you likely have noticed, gold and gold stocks have been the favored assets thus far in 2016. The GDX gold miner’s ETF is up 150% from the low this year. Moreover, the exciting part is that it’s just getting warmed up!As you can see from my gold stage analysis in the chart below, the price of gold has just broken out of its yellow Stage 1 Accumulation Phase and has started a bull market.The first major resistance level will be the $1550 level. However, depending on how the economy and global financial situation unfolds, gold could easily blow past this level and reach $2400 per/oz. in the next couple years.

Gold Stocks – Where They Have Been And Are Headed

Last year I talked about gold stocks and how they typically rally 50%-150% in value within the first rally or bull market leg. Well, that has just happened. This is great…but now what?Take a look at the gold miners ETF – GDX below. This is a chart I have posted -- and it updates publically on my stockcharts.com public list for everyone to see.Miners dropped into key my long-term investment pricing zone and have rocketed higher to first resistance. I expect some type of pause for a pullback to start, but long-term this ETF should rally back to up $60’s in due time.

Gold Stocks Overbought

The gold miner’s bullish percent index is screaming overbought with nearly 100% of gold stocks trading with a bullish chart pattern base on Point&Figure charting. Expect them to stay overbought for some time. Moreover, we may only see a minor and quick pullback before going higher.

Gold Stocks Trading Conclusión

Gold stocks are officially overbought at current levels. But, what most traders and investors do not understand is that during a bull market stocks will be, and remain, overbought the majority of the time. In many cases, stocks will only pause before moving higher. This means that selling positions or shorting gold stocks in anticipation of a pullback is a losing position most of the time.The better play is to wait for the bullish percent index to pull back. Subsequently, then start to turn back up before buying or adding more gold stocks to your portfolio.During the early stages of the bull market is when chart patterns for stocks and breakouts of these patterns are most accurate and tradable. Breakout trading has been out of favor for years in both gold stocks, and the overall stock market in general because of the Stage 1 basing phase gold has been in, and the Stage 3 topping phase the US stock market is in.

Central Bank Wonderland is Complete and Now Open for Business -- The Epocalypse Has Fully Begun

By: David Haggith

Summer vacation is here, and the whole global family has arrived at Central-Bank Wonderland, the upside-down, inside-out world that banksters and their puppet politicians call "recovery." Everyone is talking about it as wizened traders puzzle over how stocks and bonds soared, hand-in-hand, in face of the following list of economic thrills:

Britain voted to exit the EU, and a handful of other nations are talking openly along similar lines. One major crack in the European Union just happened, and others are forming. (Brexit is the name of this new Earthquake ride near the gates of Wonderland.)

Italy's oldest bank (also the world's oldest bank, Banca Monte dei Paschi di Siena) faces bankruptcy unless it gets bailed out. The bank that has survived the greatest tests of time (founded in 1472 before Columbus sailed the ocean blue) is going down unless it finds a savior! Italy's prime minister is screaming for tax-payer bailouts. At the same time, one of Germany's oldest banks and one of the largest -- Deutsche Bank -- has just about become a penny stock and faces the likelihood of imminent collapse if not bailed out, too. (Welcome to Wonderland's zombie freak show of the world's oldest walking-dead banks dying again.)

Gold and silver have been soaring as though people are fleeing to safety (in Wonderland's Bouncy House of Coins).

People are also fleeing to safety in bonds, bringing the US 10-year bond down to a 1.318% yield, its lowest yield in history. (Hit me on the head with a hammer like a pop-up gopher, and watch me smile.)

In many nations around the world, government bonds have been selling hotter than bombs in Syria even with negative interest rates, meaning you lose money every day you hold them. (The bonking game of bigger gophers for the near-sighted so that Wonderland remains handicap accessible.)

In Switzerland, people are cuing up in the ticket line to give the government their money to hold for a fifty year ride now that the Swiss 50-year bond has turned negative. (Wonderland's biggest gopher for the totally blind. You don't just hit this one; it takes you the ride of your life for the rest of your life. We call it "Gopher Broke.")

US jobs crashed in May, causing stocks to drop, but rebounded in June, causing stocks to rise, so that May is now seen as an unexplained anomaly. (Welcome to Ripley's House of Unexplained Economic Mysteries.)

The Great Britain Pound crashed to a thirty-year low against the dollar. (Enjoy your ride on the currency bumper cars!)

Japan's decade of quantitative wheezing has accomplished so little that they're going to cough up more of the same all over again because it was so much fun the first five times. (House of Bodily Humors and Horrors.)

Central banks in Europe say they need to and will crank their own quantitative easing back up, so effective have all previous rounds been. (And, so, the merry-go-round spins and the calliope plays its happy music in Euro Dizzyland.)

Falling oil prices, which contributed significantly to January's spectacular stock market plunge, are going back down the pipeline while oversupply is building rapidly at the bottom again with the buildup reaching its highest point in ten weeks. (Wonderland's log ride through oil with more than one crude splash.)

Venezuela and Brazil are collapsing into economic chaos. (It's more fun than that bungy-jumping vehicle for two at the carnival.)

Etc. (I know, darn! Just as he was on a roll. Well, hang on...)

Yet, the S&P 500 and Dow have soared to all-time record highs! Whoohoo! Hold onto your safety harness and try not to choke on your popcorn for the fun never ends in Bankster Wonderland!

What's up with stocks and down with bond yields?

US Stocks are flying high at the same time demand for sovereign bonds is soaring and precious metals are experiencing a bull market. That says to me that money is fleeing to safety, and the apparent irrational exuberance in the stock market, considering all the flights to safety, is partially fueled by foreign investors fleeing to US investments now that Europe's cracks are showing like Frankensteins body seams.This chart from David Stockman's Contra Corner shows how people are piling into bonds right now:

As a result, US bond interest rates are the lowest they have been in the history of this nation! Here's another chart from Contra Corner:

Whoohoo! Two massive records in one week. Highest stock market prices and lowest bond rates in the history of the United States! Does it get any better than this? Geez, I love this place!

We have never seen anything like this

Stocks are setting all-time record highs, and interest on US bonds is hitting all-time record lows. Money is running to gold and silver. Money is running to long-term sovereign bonds. And money is running to the US stock market all at the same time. Heck, money is running all over the place! What is there not to be happy about?However, before you think, Whoo! the stock market is going up; there's no crash happening, ask yourself what the heck is happening. We've never before seen either of these two extremes where stocks are free of all bondage and all bonds are free of their stocks. Only during the years of quantitative easing and zero-interest-rate policy have we seen bonds and stocks play together, but never to this extreme. So, when all the gauges on the instrument panel are pegging their needles past the red zone, including the one that says "We're going super fast now," you might want to say, "Whoa! What's going on?" Maybe the engineer on this train has fallen dead over the throttle.

As Jesse Felder said on Contra Corner, "We're witnessing the greatest dichotomy in the history of financial markets." Interest rates on bonds have now gone below any low of any recession ... ever. Far, far below. We're digging out the sub basement to find where the money is buried. If you were to gauge the economy's future based on where bonds have gone, you'd have to say, "This must be the scariest future ever because there has never been such a flight to presumably safe vehicles at any cost."At the same time, stocks have never been more overpriced than they are today. They hit their highest price ever during a period in which earnings have been flagging for many months. So, they're not rising because, "Woohoo! Businesses are making bank!" No, they're making new heights in spite of the fact that sales are down, profits are down, and wholesale inventories have remained locked in a highly backed-up position that is comparable only to the Great Recession and the dot-com crash ... and while things are not looking generally good in the world economically. So, there is not a lot of reason to think sales will grow to fit the high stock values. In other words, median price-to-sales ratio (price of stocks compared to sales of the businesses) has also hit an all-time record high.

Three all-time records in one week! This is the funnest place in the universo!Is this irrational euphoria among investors? Is it even people who are buying the bonds? Is it people who are buying the stocks? Or is it entities like central banks and their proxies -- not buying them as investments, but buying them in mass to shore up the entire global economy and stop the crash that started right after Brexit ... or that started right after December 16, 2015? (It's just one crash right after another here at Wonderland's National Demolition Derby.) Are central banks firing up all engines to stop a crash in its tracks with a massive coordinated salvo of purchases?

So, what is happening as central bankers watch each other in mutual admiration?

The reason anyone would buy negative-yielding debt is actually pretty simple: Because they have to. They are central bankers looking to help promote economic growth. They are insurance companies, pension funds and money managers who have to match liabilities with assets. They are not, by and large, retail investors who are so afraid of risk that they're willing to pay for the privilege of lending money to a government. Together, those buyers have helped build a nearly $12 trillion funnel of negative-yielding sovereign debt -- unprecedented in world history.

Gee, there are a lot of things breaking historic world records this week. That must mean it's a great week!

Cox thinks the big buyers of bonds are central banks, pushing down interest rates to stimulate the economy. No surprise there. Central banks have been going pedal-to-the-metal to hold interest rates to the floor for almost a decade, so why not continue? The record highs in bond sales (with corresponding lows in interest) and high in stock sales most likely are due to rapid pressure being applied to the accelerator as a counter-measure to the concerns governments and bankers have had about Brexit.Central banks could do that directly, or they could do it invisibly (since they operate under a cloak most of the time anyway) by offering enticements or pressure to their proxies. ("You want this mega-conglomerating merger to happen: buy ten billion dollars worth of US bonds, and then I'm sure we can get it approved." If not that, there's a thousand other ways for central banks to push money into markets now that they are accustomed to doing so in an unbridled fashion. It's the new norm.)That the stock markets are being driven up by central bank purchases can be seen in the following graph:

Emerging markets (EM) that were crashing at the start of 2016 offloaded assets to raise funds to keep the home front running at the start of the year. That contributed to January becoming the worst January in the history of the US stock market -- worse than any start of a year in the Great Depression or the Great Recession. The central Bank of Japan and the European Central Bank increased their buying of those assets to offset that fall, and both recently announced they are going to apply a lot more stimulus.

Cox goes on to write,

Ostensibly, the global race to the bottom was supposed to stimulate growth, and it may just well keep pushing risk assets [stocks in particular] higher. But what awaits on the other side is adding to the worries of investing professionals. "Ultimately, there will be a day of reckoning," said Erik Weisman, chief economist at MFS Investment Management.... There remains a pervasive feeling on Wall Street that the risk rally is built on sand, with a price to pay in a world where owning government debt no longer pays but rather costs.

Even central banksters who create money out of nothing cannot create a free lunch. Somebody pays, but probably you, not them. It's an ominous feeling really -- a sense that there is no underlying reality anymore -- that the sands are shifting under your feet.

"There's no doubt that there are and will continue to be unintended consequences, and the further we move away from something conventional into unconventional, the ratio of unintended consequences to intended consequences will rise," Weisman said.

We're seven years on since stimulus responses to the Great Recession began. These have also been the greatest stimulus measures in the history of the world. (No wonder these rides are so thrilling as they reach new world records multiple times a week.) However, outside of flying stocks, we still have a global economy that seems endlessly stuck in the dog days of summer. Or, to change to my old winter metaphor (now that summer has turned abnormally cold here where I write), the longer and harder the snow plows push the snow straight ahead, the more it piles up as an impossible obstacle ahead of them. The louder they get with chained tires clawing and engines roaring and smoking, the less snow they push. The plows are now grinding away at full throttle in the lowest gear they have, and it is looking like they are going to remain stuck in that gear for a very long time -- maybe another decade ... unless they simply give up the battle.The world is buried under the highest mountains of the cheapest debt ever imaginable, and nothing is moving in the overall economy (except financial instruments that are trading places). And that is where I said we would wind up when I wrote my very first articles in my Downtime series on government bailouts and stimulus back at the start of the Great Recession. I said they were pushing all the snow straight ahead, instead of off to the side, so (quite a ways down the road) they would have a mountain of snow so high in front of them that all the plows in the world could push it no further. We are now quite a ways down the road.The European banks that are screaming for bailouts are buried in bad debt they pushed forward from the Great Recession. They never wrote it off then because the damage to their balance sheets would have been so severe. As I said back then, such policies only meant the damage to their balance sheets in the future would be even more severe. The problem of bad debt owned by banks in Italy is now four times worse than it was at the bottom of the Great Recession.Why did I know that would happen? Because nothing about this "recovery" is recovery. It has all been a forestalling of problems, "kicking the can further down the road," with the inevitable pay-back time becoming worse the longer we forestall the inevitable write-off of bad debt. My Downtime articles years ago sounded many warnings that everything governments and central banks were doing was making a very bad situation worse just so we could avoid the pain at the time. Such actions resolved none of the true underlying problems that are built right into the foundation of our debt-based economy. Until we stop thinking we can build true monuments of wealth over ever-growing chasms of debt, we will solve nothing at all.Europe's banking troubles are now far deeper than they were at the belly of the Great Recession Part One. Europe endlessly scrambles to solve banking troubles that become harder to solve with each new phase. The snow plows I talked about in my Downtime series have not only stopped pushing the snow ahead, but the drift is now avalanching back onto them and pushing the plows backward, even as their wheels are spinning and screeching forward.(This is what we do in the parking lots here in Winter Wonderland.)

Why else would the entire financial world be upside down?

Another explanation for the greatest dichotomy in financial history that is now happening in the US is that money is exiting European markets and fleeing to anything in the US because the US remains the best looking corpse in the cemetery; so, if you want to dance with stocks, do so with Stockzilla, bride of Bankenstein. What appears completely irrational is in part a flight of money from one part of the world to the last safe place on earth. (Safe for the moment, but moments count when you're fleeing an avalanche.)Central banks have become the biggest bullies in the playpen. With the biggest bullies pushing their weight around as much as they possibly can, there is no safe place for small investors in the playpen. So, individual investors around the world are fleeing to the safest investments they can think of. With Europe in such volatile flux and China being such an unknown with its own massive upheavals, what more readily comes to mind right now as a final resting place than the good ol' US of A?Naturally, the US will be the last major economy affected by the second avalanche of bank failures, which this time has started in Europe. Brexit isn't likely to trigger anything in the US directly, other than the immediate panic selling that was seen in stocks right after the vote. Once it was clear that Brexit wasn't going to destroy the United States, some euphoria within the US probably kicked in and helped push the stock market up rapidly past its long-standing ceiling because that euphoria was accompanied by even larger money flows from outside the nation as people ran for cover.Brexit appears to be triggering the failure of banks that were too fat to fail, lest they flounder upon us and squish us all -- some of the world's most established banks. As things fall apart to this unprecedented degree in Europe, money has to run somewhere, and the US casino still has pretty lights that can be seen as far away as the growing darkness in Europe.The United States will not remain immune to what is happening in Europe forever, but the hot air coming out of Europe's balloon may fill the US sails for awhile. For the moment, the US is the beneficiary of Europe's decline.This could be a brief moment, however, as there are likely to be surprising connections (black-swan events) between Europe's failing banks and US banks that materialize faster than anyone expects.We're sailing in uncharted territory that looks nothing like anything we've seen before, so who knows what comes next in a world where stocks soar in the face of generally gloomy economic news while bond sales also soar at the lowest interest rates in history? (Welcome to our Pirates of the Caribbean boat ride where Mario Draghi plays the part of Jack Sparrow!)With Europe reaping the whirlwind as its banks turn out the lights with China looking lost and confused and sometimes spinning erratically, with Japan ecstatically voting to start its umpteenth round of unsuccessful quantitative easing, with South America breaking into greater anarchy every day of its pitiful, starving life, and with the US in longterm manufacturing decline with corporate profit growth also in continual decline, one cannot seriously think the world is just going to pull out of this!That means those who are buying stocks because they believe there's a new 30% rising bull market just beginning are taking euphoria to new heights, too. They are, in the very least, taking a perilous ride.

"Investors are buying bonds for capital appreciation and stocks for income. The world has turned upside down," said James Abate, chief investment officer at Centre Asset Management LLC. The shift, according to Abate, has been fueled by central-bank stimulus inflating government-bond prices across the world, pushing yields on nearly $12 trillion of government debt into negative territory. And as bond yields tumble, more and more equities are yielding more than government bonds, spurring demand for companies offering sustainable income in the form of dividend payments. "It is a poison brew that central banks keep serving us,"Abate said. ~ MarketWatch

In other words, central banks have taken all rationality out of all financial markets ... at least in one sense. Everything everywhere now is contingent upon what central banks are doing. The contagion of their poison is ubiquitous. There is another sense, however, in which this is all rational. I call it the new rationality: central banks have all the money, and money follows money. So, individual investors are doing the best they can in following the money. So, in terms of global economics and politics, its irrational; but in terms of following the makers of money who run the show, it makes perfect sense. It has is own mad mindset.

"There's a perception there's a greater fool behind you," Kohli said, pointing to the strategy of buying a bond with the intention to sell later at a higher price. But the main forces behind the rally, Kohli added, are central-bank purchases that keep fueling demand and propelling prices higher.... What's more, the recent divergence between the main U.S. equity indexes and benchmark Treasury yields has been flashing "mind the gap" signals that fuel fears of a sharp correction.... So, despite popular belief, the decline in interest rates "should be viewed as a bad sign," noted BAML's Global Rates and Currencies Research team, in a report released Monday. "Too often we have heard how declining interest rates are good news and are used as a justification for investors being pushed out the risk spectrum. We disagree and argue this time is different and the decline in rates should be interpreted as a bad sign," the analysts noted. ~ MarketWatch

If Kohli's first statement doesn't sound like the definition of a Ponzi scheme, what does?

In terms of everything that once made sense financially, central banks' transformation of this world into Wonderland is now complete. In this topsy-turvy world, Mad Hatters may not be so mad as they look. Everyone is simply trying to maneuver around the biggest bullies in the playpen by finding the safest place to play. It's the new rationality of a world intentionally turned on its head -- at last, by nearly everyone's recognition -- even more than it is euphoria. The irrationality has become obvious. What is not so obvious is the rationality of the irrationality.In other words, if investors take the bullish gamble on a rising stock market in the US at a time when most of the world is falling apart, they may be right for all the wrong reasons ... for now. In Central Bank Wonderland, they have nowhere to fall but up. On a short-term basis (probably very short-term) market bulls could be right only because all the other circling drain holes around the world are dumping into sovereign bonds, precious metals ... and the US stocks as the last casino open for business. Everything is now flowing into the extreme zone at the same time.You can bet on the wild ride in US stocks, or you can bet on bonds that guarantee you almost nothing (or even less than nothing), or you can bet on precious metals. All three markets are rising together right now. The question is which one is likely to continue rising as Europe disintegrates, the oldest banks in the world crash, China teeters between crashes and stimulus while running the world's most notoriously cooked books, Japan takes the governor off the throttle and flies with full-hot afterburners blazing into the rarified nozone, and South American economies implode into social chaos?This is the crazy new zombie economy I call "The Epocalypse" -- a world of economic collapse everywhere, apocalyptic in scale, epic in that it already exceeds the greatest extremes in history, and epoch in that it will come to be known as its own period in time. One word that says it all.You have witnessed the beginning of this hideously convoluted world, and it only gets more distorted from here because nothing has been done to right the essential problems that are creating this grotesque chaos while ungoverned greed rules the day.The children are no longer asking, "Are we almost there yet?" We've arrived, and they're now asking if they can go home. Welcome to Central Bank Wonderland where Janet Yellen is the Queen of Hearts and all the little carnival riders are Mad Hatters whose moves are rational if you live in a world with irrational rules created by truly mad leaders. Dinner is served in our Zombie Epocalypse Room where only zombie banksters get to dine ... and dinner is you! You see, if you were ever able to walk out the back door of Wonderland and look over your shoulder, the sign above the door says "Hotel California." You are always welcome here ... and can never leave.Doest it get any more fun than this?Sure it does. Wait till you Act Two, which could be as early as next week!

Terrorism is making life difficult for many vacation destinations, with European travelers choosing holidays closer to home. The travel industry is fundamentally changing as a result and many once popular places are facing ruin. By SPIEGEL Staff

EGYPT
Sinai Peninsula

He quickly performed yet another inspection of the surveillance cameras, got an update on the status of maintenance work being performed on the bomb detector and went over his calculations on the future strength of his team of guards for the umpteenth time. Now all security expert Mohab Bakr needs is his cigarettes, then he'll be ready for his most important appointment of the day, maybe even of the season: the security meeting with the managers of the Egypt's seaside resort Taba Heights. Bakr is in charge of security.His senior-most supervisor, "Mister Jokim," will also be at today's meeting. His real name is Joachim Schmitt, the German vice president of hotels and resorts for the Orascom Group, which owns Taba Heights. The international corporation operates 25 locations with nearly 15,000 beds between the Nile and Red Sea, but business has seen better days. The unrest following Hosni Mubarak's deposition in 2011 along with Islamist terrorism have taken their toll on the Swiss-based company's share price, which has fallen from 150 Swiss francs to below 10. "Mister Jokim" has come to Taba to talk about the security situation -- security, in these trying times, has become an invaluable commodity.Bakr, a bulky man in his early 50s, wears a dark mustache, light linen trousers and a blue and white plaid shirt. When Bakr makes the rounds inspecting the resort, he blends right in among the guests. But now he's back in his office, situated directly above the resort's central laundromat at the far edge of the complex, talking about how he protects the tourists.Bakr's greatest wish is that visitors feel safe again in Egypt. He wants to see the French, Swiss and German tourists return to the hotels, the coral reefs and the deep blue sea.The area Bakr oversees is enormous. At 4 million square meters, or 43 million square feet, is about as big as 616 football fields. Three security perimeters encircle the resort village, which has its own golf course, shopping center and clinic. The main road, which continues on to the Egyptian-Israeli border town of Taba, is secured by military outposts fortified with machine guns and sandbags. The main entrance to the resort is guarded by police and Bakr's security team, a force of around 100 men. The bottom of every approaching vehicle is inspected with mirrors and sniffed by bomb dogs. The guards make no exceptions, not even for the Peugeot of "General Mohab," as they call Bakr.The name comes from Bakr's former life, back when he was a brigadier general in the Egyptian military. As a liaison officer on the Sinai Peninsula, he maintained contact with the Israelis, multinational troops and the Palestinians. He has photos of himself sitting at a negotiating table across from Israeli officers and in the Gaza office of the late Palestinian leader Yasser Arafat. He even worked for Abdel Fattah el-Sisi, back when the now-Egyptian president was still the head of Egypt's military intelligence.After three decades of service as a brigadier general, Bakr retired. "The stress was too much," he says. His current position, commanding security guards at Taba Heights, is much more relaxed -- and the pay is better too. "This new job is a piece of cake," he says.It's not the kind of thing you'd expect to hear on the Sinai Peninsula, which is considered a stronghold of Islamic terrorists and Germany's Foreign Ministry has officially issued a "partial travel warning" for all of Egypt. It's the kind of cautionary notice that's read carefully by German travelers -- like the Koslowski family.

GERMANY
Warstein

Sylke and Ulrich Koslowski are nice people. She's a cashier at Lidl, the German discount supermarket chain, while he works as a machinist. They live in Warstein, a town that is, geographically speaking, smack in the middle of Germany. From the balcony of their second-story apartment, they look out upon the green undulations of the Sauerland, a low range of hills. The Koslowskis like to go for walks and they love where they live. Yet the walls of their apartment are decorated with framed photographs of the many trips they've taken. They've always loved to travel.Hungary, Bulgaria, Mallorca, Italy and Fuerteventura along with city trips to Amsterdam, London and Brussels. They were in Abu Dhabi and the Maldives. They wanted to go to Turkey next -- Istanbul perhaps, or to Antalya, where the prices are tempting for so many Germans. They're worldly people, interested in new places.But then came terror -- and with it, fear.This year, the Koslowskis aren't going to Turkey or the Maldives. Instead, they've chosen Fehmarn, a Baltic Sea island off Germany's northern coast. Their choice to travel domestically is a common one these days and Germany's beach resorts are fully booked.Such travel choices made by the Koslowskis of this world, totally normal Germans, are having a profound impact. Due to their anxieties, their fears and their trip cancellations, hotels in Tunisia are going bankrupt and Turkey is losing a significant chunk of its usual tourism revenue.Sylke Koslowski once visited a mosque in the Maldives, which was very impressive, she says. But today, she's afraid. She fears a rage she does not understand. She doesn't want to have the feeling of "being accepted in these countries just because tourists bring in money" without actually being welcome.Vacation was once a microcosm of globalization, one that was accessible to everyone. Average Joes, cashiers and machinists alike, would fly in crammed discount jets via Dubai and Singapore to Phuket, Thailand. The diving instructor would be from Kuala Lumpur, Muslim and married to a Buddhist. At night, everyone would drink Dutch beer and eat Thai soup and ribs with sauerkraut. It was pleasant and comfortable, but it was not a situation that was built to last. It was delusional to believe such a comfort zone could be maintained forever, whether people were paying for it or not. Many such vacation destinations were in countries where society was in a precarious state of tension, aggravated by political repression, poverty and hatreds.But are tourists really interested in all that? Of course not. Tourists are in search of simplicity, says crisis and communications expert Peter Höbel, who advises firms in the travel industry. They want a place where they are removed from psychological strain, from incomprehensible anger -- and they want to be loved.The tsunami in December 2004, for instance, cost more people their lives than all terrorist attacks since then. But that was a natural disaster, an act of God. Terrorism, on the other hand, is the personification of evil. It undermines our self-image as travelers; we want to be smiled at and greeted as friends. This illusion is currently being destroyed.But isn't fear of terrorist attacks, rationally speaking, completely overblown? From the sober perspective of statisticians and risk analysts, the answer is yes. The probability of falling victim to terrorist violence in a foreign country is extremely low. You're much more likely to get into a car accident on the way to the airport or suffer a heart attack inside the terminal because the check-in line is so long.Risk analysts have come up with a unit of measurement for death called the micromort. It measures the probability of dying an unnatural death on a an otherwise normal day. One micromort is the equivalent of a one-in-a-million chance that someone will die. A holiday flight, for example, is relatively safe. You can fly from Düsseldorf to Antalya and back and only expose yourself to a risk of less than 0.5 micromorts. A Caesarean section, on the other hand, has a statistical probability of 170 micromorts, while bypass surgery clocks in at 16,000 micromorts.And when Ulrich Koslowski rides home from Fehmarn on his Harley-Davidson, a trip that covers a distance of about 400 kilometers (248.5 miles), he'll hit a risk factor of 40 micromorts. That's not very high, but it's higher than was the risk of dying in a terror attack in France in 2015. Death by terrorism is as likely as death by falling coconut, which kills 150 people a year. Or by walking backwards off a cliff while taking a selfie -- a fairly new kind of fatal accident.But vacation isn't a probability calculation. It is an emotional journey. And fear breeds more fear. Tourists are social creatures -- and not many of them would enjoy the prospect of sitting alone near the hotel buffet, surrounded by melancholic waiters.Another factor came into play as the Koslowskis decided upon Fehmarn. It's an invention from northern Germany, and it first hit the market this year -- a beach chair that transforms into a canopy bed where you can spend the night. At 1.3 meters wide and 2.4 meters long, it can be zipped up and it has portholes for peeking outside. From the confines of its walls, you can look up and see the stars and listen to the waves breaking against the shore.Arne Schultchen has a particularly nice way of explaining the success of this beach basket. He runs a design agency in Hamburg and it was his company that developed this novelty and the philosophy to go along with it. The beach chair, Schultchen says, represents shelter and security: "The beach chair is kind to me, it's reliable -- the opposite of a terrorist." That's certainly one way to see it. The beach chair is certainly symbolic of an important trend in tourism. Since 2005, the number of overnight visitors to Germany has jumped 27 percent, and in the last year alone, it rose 2.9 percent to 436 million people.Fear of terrorism is dividing the world into winners and losers. Spain, Germany, Greece and Italy are profiting. In Turkey, Egypt, Tunisia and Morocco, small family-owned companies and large hotel chains alike are going under.The year 2016 could be a decisive one: The winners are experiencing the full power of the tourism industry, one of the biggest economic sectors on the planet. In the EU, there are as many people working in tourism as there are in the auto industry or the agricultural sector.The losers see themselves in a war of sorts, one in which today's enemy was yesterday's friend. Their mode of attack is the fact that they no longer show up. Unemployed Egyptians, desperate Tunisians -- that's how new refugees are made, or how legions of young men become susceptible to the siren song of Islamist preachers.Survival Loans in Paradise

TURKEY
Side

Hayatli Simsek enjoyed his work the most when he was traveling with his guests in the Taurus Mountains, where the women still bake pita bread by hand and children swim in the turquoise river. For Simsek, a travel guide, these were special excursions: "I wanted to show them how we live."Simsek is a gaunt 50-year-old with a tattoo of a stylized heart on his forearm. He goes by Hajo -- that's what people used to call him back when he lived in the southern German city of Heilbronn.Simsek was born to a family of guest workers from Anatolia. He played football with the other boys from his neighborhood, became a stonemason and married in Germany before having two daughters. Fourteen years ago, his wife divorced him and Simsek needed a fresh start. So he went to Turkey. Things weren't so bad -- at first.Simsek sits under a pomegranate tree in his yard in Side, a seaside town located about 60 kilometers from Antalya. He looks at the beach bordering his property and talks about how he built a new life for himself here on the Turkish Riviera after more than 30 years in Germany.After completing his tour guide training, he convinced his boss to buy a white Mercedes bus. He painted colorful waterfalls and cliffs onto the side and began offering "Mountain safaris" for 20 a ticket. The bus seats 50 people.Business was going well. On some days, he even had to rent a second bus. But now? Practically every week, a bomb goes off somewhere in the country, or a terrorist detonates a suicide belt. More than 300 people have died since June 2015 in nearly two dozen attacks by Islamic State or the banned Kurdistan Workers Party. On the last Tuesday in June, three suicide bombers killed 45 people and injured 240 others at Atatürk Airport in Istanbul. Ankara suspects Islamic State was behind the attack.In the first five months of 2016, the number of foreign visitors to Antalya dropped by more than 40 percent. Economists worry this could amount to a 7 billion loss in revenue. Along the Turkish Riviera, almost all the hotels have had to take out loans.Until recently, Turkey's travel industry was generating more than 6 percent of the country's gross domestic product with nearly one in 10 jobs depending on tourism. The sector, observers say, has sufficient financial reserves to keep going for a year, two at the most. After that, 30 to 40 percent of the hotels and restaurants will have to close, which would cost thousands of jobs.Simsek walks along the empty beach promenade in Side, past closed hotels and restaurants. The last time he took guests into the Taurus Mountains was three weeks ago, he says. "If things continue like this, I'll be bankrupt in half a year."Turkey isn't the only travel destination that has lost its innocence. The world has become a dangerous place, or so it seems. In 2015 alone, there were dozens of attacks and numerous kidnappings outside Iraq and Syria for which Islamic State claimed responsibility. Tourists are especially "soft targets."Their behaviors and their routes are easily predictable, they're unsuspecting, sometimes naive and unprotected, and they don't know their way around. They're the perfect victims.

GREECE
Nemea (Peloponnes)

It's just past 6 p.m. when the black car pulls up. It's a single, modest-looking sedan without a police escort or cordons or sirens -- which is remarkable, because Greek politicians tend to be fond of making a grand entrance. As soon as Elena Kountoura, Greece's minister of tourism, gets out of the car, people begin approaching her and she joins the event's organizer to have him explain the set-up.

A former model and athlete, Kountoura is probably Greece's most popular politician.Tourism is the only sector in Greece where things are actually doing quite well, and Kountoura is the ruler of this empire of hotels and beaches, restaurants, camping sites, bars and souvenir shops. Today she has come to Nemea, an ancient town on the Peloponnese peninsula where the Nemean Games are held every four years. The games have their roots in Greek antiquity and pay tribute to Zeus.It's a perfect, warm summer evening and Kountoura is in a good mood. Last year, more than 26 million tourists came to Greece, an increase of 7 percent over 2014. It's an industry of utmost importance for the crisis-ridden country, employing more than a million Greeks, or one-fifth of all workers, even if it's mostly seasonal.Is Greece profiting from the tourism crisis in the rest of the world?Kountoura says that Greece has had its problems too. The arrival of the refugees, she says, caught the country off guard at first. But, she says, "our people, this beleaguered nation, responded to the refugee crisis with humanity, hospitality, generosity and kindness. This was a hugely important message to the world, that counterweighted the negative publicity of the refugee crisis."But things didn't unfold quite as harmoniously as Kountoura would have it. On Kos, for example, the island that lay along the migrants' route last year, there was discontent and unease among many vacationers. People visiting the island didn't want to be confronted with the sight of refugees and their suffering during their vacation, and they certainly didn't want to stroll past them in their bathing suits along the beach promenade.Traveling for pleasure is a relatively new invention. In the past, ordinary people only traveled when necessary -- unless they were greedy or crazy, say, an adventurer, merchant, missionary or a man possessed. It wasn't until the 18th and 19th centuries that literary greats glorified travel as a romantic experience, a way to discover oneself. In the 20th century, thanks to flat-rate trips and budget travel agencies, globe-trotting was democratized and mechanized.But it wasn't all innocent. Western tourists tromped through isolated villages, snapping photos along the way, and women in hotpants sauntered through Oriental bazaars. Tourists put their money, cameras and way of life on display, as well as their skin and sexuality.And now, in the 21st century? Are we witnessing the end of this lack of inhibition?A Spanish Revival

TUNISIA
Port el Kantaoui

The Royal Kenz Hotel in Port El Kantaoui is an ocher-colored building on the beach with bubbling fountains, well-maintained swimming pools and ebullient staff. Inside are 950 beds. Many of the structures here are like this one, but the Royal Kenz stands out because of its location.A year ago, right next door at the Hotel Riu Imperial Marhaba, the terrorist Seifeddine Rezgui Yacoubi pulled a Kalashnikov out of an umbrella and opened fire, killing 38 people, all tourists, most of them British, before he was overpowered.Since then, a dark cloud has hung over this stretch of coastline. Restaurants and small entrepreneurs have given up and sun umbrellas rot on the beach. The Royal Marhaba is sealed off by a fence topped with razor wire.The livelihoods of roughly 2 million Tunisians depend on tourism. The turmoil that followed the Arab Spring was already keeping some foreigners away, but it wasn't until the dual attacks in 2015 -- one in March in front of the Bardo National Museum in Tunis and another in June on the beach in Port El Kantaoui -- that revenues from tourism plummeted by 35 percent.Who's to blame for this situation? The politicians, says Ridha Jegham, because they're the ones making people afraid. Jegham, 50, has an athletic build and sports a crew cut. He's the manager of the Royal Kenz.Jegham gives a tour of his empty hotel. At a lonely bar sits a man named Mehdi, a hulking security guard in a red polo shirt. From his perch, he watches over the eight rows of beach recliners for guests of the Royal Kenz. Three Russian families have claimed the first row, dragging the chairs from the shade into the sun, right up to water. It's almost only Russians who ever come here anymore. Tunisia became their destination of choice over Egypt after the attack on a Russian passenger jet over the Sinai desert.The hotel personnel would prefer the English; they're not as surly as the Russians. But British tour operators are shunning the country, along with most Belgians and Dutch. British airlines don't even fly into the area anymore.Contributing to hotel manager Ridha Jegham's tragedy is also a great misunderstanding. Jegham thought the tourists were like friends who were coming for personal reasons. He believed there was something akin to sincerity or loyalty in this business.He says his country, Tunisia, has emulated European ideals like no other country in the region. Freedom, democracy, self-determination, responsibility -- born out of the Arab Spring revolution of 2011 and the free elections that followed. He points out that there are satirical programs on TV now, something that would have been unthinkable before. Attending university is free, and education is just as compulsory for Tunisian children as it is for those in German or France.Jegham speaks with an air of equal parts pride and bitterness. It's like he's saying: We deserve better."We are peaceful and liberal. We're modern," Jegham says. He doesn't understand why the Europe that was once so eager to bask in the sun on his beaches and take full advantage of the eternal North African summer isn't showing more solidarity and sending its tourists.

SPAIN
Valencia

The day began wonderfully for Víctor Tatay, and it's only going to get better. Tatay has been in a glorious mood since the beginning of the vacation season. After all, he's doing what he does best: finding jobs for his compatriots.Tatay is the director for the Valencia region at Spain's leading temporary employment agency, Adecco. He's 35 with a neatly trimmed beard, dark suit and a handkerchief sticking out of his breast pocket. He sits in his office inside an Art Nouveau house in the bustling central neighborhood of Valencia. As he gazes up at the ornate stucco ceiling, he talks, offering one statistic after another.He's been at Adecco for 12 years and he likes the job. Twenty-five offices report to him, from Castellón to the border with Andalusia, including 120 staffers. He hopes to find jobs for most of the region's 450,000 unemployed during the next three months of the summer season. The demand is there, with the popular tourist destinations Denia, Benidorm and Alicante urgently needing workers.All three locations are in Tatay's area. He's an important figure for Spain at a very important time.This country is the most significant beneficiary of the shift in the tourism sector. Last year, 68 million people poured into the country -- 22 million more than Spain's entire population. By May 2016, 25 million tourists had already visited, an 11 percent spike compared to the same period the year before.The onslaught has been a blessing. When the financial crisis struck Spain, driving savings banks to their knees and collapsing the country's construction sector in 2008, millions of people lost their jobs. Six million women and men were left without work during the worst of the crisis and there are still close to 4 million in search of a job.That's where Tatay comes in: He's the man who feeds the industry as it calls for laborers, the man who turns the unemployed into friendly receptionists, waiters, cooks, maids or drivers. Tatay's people have a special suitcase always at the ready for testing new candidates. Inside it are a tray, silverware and a bottle. "The young man must demonstrate that he can set a table, that he knows how to serve dishes and pour wine."Tatay looks at the clock. Time to leave; he's got a busy day ahead of him.

EGYPT
Sinai Peninsula

Mohab Bakr, the former general and security expert, turns on his computer and prints out a military map. "Here," he points to the map, "that's the Sinai, with an area of 61,000 square kilometers. And this up here, in the right-hand corner, on the border with Gaza, that's the really dangerous part. It's 800 square kilometers, max. Here on the map it's about as big as my thumb. That's it!"So is the Sinai not actually dangerous? What about the terror attack in February 2014 that killed four people? And the bombing in Dahab that claimed the lives of more than 20 people, including a boy from Germany? And doesn't Islamic State have an offshoot it calls the "Province of Sinai"?Bakr says he can appreciate "certain concerns tourists may have." But what he cannot fathom is how his Egypt, his Sinai, are being put under quarantine. Because airlines are no longer flying to Sharm el-Sheikh, only one of the hotels in Taba Heights is still in operation."Did the German Foreign Ministry issue travel warnings for France after the Paris attacks?" Bakr asks indignantly. "Did anyone advise against trips to Florida after the Orlando massacre? There's a double standard in the West!"Then Joachim Schmitt, the vice president of the hotel group, finally arrives. Bakr hurries to the lobby, where the meeting is starting. Bakr reports on the cabling work being done on the 40 newly installed surveillance cameras. Should monitoring be expanded? Schmitt dismisses the notion, out of respect for the privacy of the guests.But what more can we do? Bakr reports on the positive experiences his team has had with the bomb detector they recently acquired. It's a Russian model, expensive but efficient. Schmitt approves of Bakr's suggestion to replace bomb sniffing dogs at entrances with more detectors after Bakr explains that machines don't need to take breaks. The investment could pay off if guests start visiting the resort again in greater numbers.Schmitt looks at the number of bookings. There are more reservations from Jordan, good. At some point, he believes, the Russians will start coming back too. And the Germans as well. He nods. Taba Heights should be prepared for when things get better again.On the website of Germany's Foreign Ministry, the travel advisories for Egypt still read: "Travel to the northern Sinai Peninsula and the Egyptian-Israeli border region is strongly discouraged. This also includes the Taba resort area."The Koslowskis are taking that advice to heart.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.